S&P, Greek standoff pressure eurozone to boost defences - The Best from Greece

Prime Minister Lucas Papademos promised a debt swap would be clinched in time and dispatched senior officials to Washington on Monday to break a deadlock in talks that has prompted new fears of a disorderly default.

 

The government needs a deal with the private sector, the EU and the IMF to avoid going bankrupt when 14.5bn euros of bond redemptions fall due in late March, but talks with its creditor banks broke down without an agreement on Friday.

 

A leading representative for the creditors said Athens was not the problem in the talks, suggesting the issue lay with terms insisted on by foreign lenders keeping Greece afloat with aid.

 

The head of the Public Debt Management Agency, Petros Christodoulou, and a senior adviser, Yiorgos  Zanias, were travelling on Monday to Washington to meet International Monetary Fund officials, a government source said, and Athens put a brave face on the standoff.

 

"There is a little pause in these discussions. But I am confident that they will continue and we will reach an agreement that is mutually acceptable in time," Papademos said according to a transcript of an interview with CNBC.

 

Under the bailout terms agreed in October, the country’s privately held debt would be reduced by half so that, together with structural reforms, the overall debt to GDP ratio of Greece would fall to 120 percent in 2020 from 160 percent now.

 

Inspectors from the EU, the IMF and the ECB, due in Athens on Tuesday for talks on a second, 130bn euro bailout, have warned they need the deal with the private sector to achieve that debt-reduction goal before they agree to give more aid.

 

Papademos said talks on these two processes must be completed over the next two to three weeks.

"This is the objective. I think the conditions are in place in order to do so," Papademos told the broadcaster.

 

 

Charles Dallara, head of the Institute of International Finance (IIF) banking lobby, told the Financial Times an agreement in principle was needed by the end of this week if it was to be finalised in time for the March bond redemptions and said the Greeks were not the problem.

 

"All the European heads of state said they wanted a deal with a 50 per cent (haircut) and a voluntary agreement," Dallara was quoted as saying. "Some of their own collaborators are not following that decision."

 

Negotiations stalled over the interest rate Greece will pay on new bonds it offers.

 

Papademos played down speculation that Athens would need additional aid to that agreed at a eurozone summit in October.

 

"I think the funds that have been pledged at the European summit, combined with the outcome of the private sector involvement process should be sufficient in order to support financially the Greek economy," Papademos said.

 

Uncertainty over fixing the country’s debt crisis is more of a threat to Europe's stability than the downgrade on Friday of nine eurozone countries' credit ratings by Standard & Poor's, British Finance Minister George Osborne said on Monday.

 

The downgrades were largely expected and traders said pressure on Italian and Spanish bond yields on Monday were offset by the European Central bank stepping in to buy the bonds.

 

Bill Gross, the manager of the world's largest bond fund PIMCO, tweeted that Standard & Poor's downgrade had made investors "aware" that countries can default and Greece would be the next example. (Reuters)